Payment Of Bonuses Upon Employment Termination

I sometimes get calls from folks whose firing or resignation cost them a bonus. They wonder whether they can claim the bonus that they’d have been entitled to had they not left employment. That’s not always an easy answer because it depends on the individual’s situation.

Bonuses are considered wages under Iowa law. In most instances your employment termination, voluntary or involuntary, will cost you any wages, including bonuses, that you’d not earned on the effective date of your termination. So if your employer requires you to be employed on a certain date or work so many hours to be eligible for the bonus, and you miss that mark because your employment ends for any reason, you likely will not be entitled to the bonus. But if you did reach bonus eligibility before your termination then your employer has to pay you that bonus as earned wages even though your employment has ended.

Iowa’s courts have not generally recognized a claim for a “pro rata” bonus. If you miss the bonus eligibility by a day because your employment ends, courts usually do not order your employer to pay 95% of the bonus. Bonus claims are pretty much an all-or-nothing proposition — either you met the eligibility requirements set by your employer and can claim the bonus, or you missed the requirements and cannot claim a bonus, regardless of how close you were to being eligible for one at the time you were terminated.

About the only exception to that rule applies to contractual (as opposed to at-will) employees. An employee who is under contract with an employer for a set period of employment may be able to make a pro rata bonus claim if the employer unilaterally terminates the employment contract before the contract’s set termination date.